Payrolling employee benefits

Posted 12/08/2019

An employer has the option of paying for expenses and benefits for their employees, such as providing a company car and paying for the mileage travelled, or medical insurance and childcare; these are only examples and are not the only expenses an employer can contribute to. Any payments on benefits and expenses will have to be declared to HMRC and Class 1A National Insurance (NI) will need to be paid.

There are two ways the expenses can be reported to HMRC, either by using a P11D at the end of the tax year, or by using the PAYE scheme. Some expenses and benefits will have their own rules and information required, such as company cars being available for employees or paying off loans to employees, so it is ideal to read up on any kind of expenses paid for and to ensure rules and guidelines are being met.A P11D would be a collective of all the expenses and benefits paid to an employee within a tax year, so HMRC would only see the total amount paid for that employee and for what type of expense. P11Ds are required to be submitted by the 6th July following the tax year end so employers have 3 months to prepare the forms. Any Class 1A should reach by the 22nd of that same July although HMRC advises that any posted monies or cheques should reach their offices by the 19th of that July. There are two pages to the P11D and not every employer will need to fill in every box, only those that are relevant to its employees.
HMRC will usually ask for the submission of a P11D if they have been informed that one is required or if the employer has provided P11Ds in the past few years. If one is not required for a tax year the employer will have to complete a declaration for no Class 1A NI.

Another way to record and pay tax on benefits and expenses would be directly through the PAYE scheme itself, and this is called payrolling. Each time the payroll for employees is processed, the person carrying out the calculations can include the payments alongside the employee’s wages or salary pay. This would tax the expenses at that time, so a P11D would not be required. An employer would need to complete a P11D(b) form and write “PAYROLLED” on the submission so any Class 1A NI can still be paid. To carry put payrolling it is important to ensure that the payroll software the business uses will allow the calculations to take payrolling into account.
If the payrolling choice is used all employees should be given a written letter explaining what payrolling is and what it means for them.If any mistakes are found on the P11D forms the corrections need to be made on a paper version of the forms and posted to HMRC, clearly stating that these copies are amended and replace the original version. All evidence for the expenses and benefits should be retained and kept safe for up to 3 years after the tax year.

Tags: P11D, Employee Benefits, running payroll